Six Reasons You Need to Invest in a Savings Plan
India recorded a gross domestic savings rate of 30{d76f1c19516befd0d02dd7628c4f02994b77c2f36ca1cda12e5887cc42cc72f7} before the pandemic struck. This rate was lowered by the pandemic, but is now slowly picking up again. This article talks about a savings plan, which is a great tool for the common man to save up for the future and build a corpus. A savings plan covers specific future expenses, if and when the need arises. If such a need does not arise during the term of the plan, the policy holder can claim maturity benefits.
Listed below are six reasons why it is a wise idea to invest in a savings plan.
- It affords financial protection
A savings plan provides the policy holder with financial protection during the term of the plan. This protection can also be availed by the dependants of the policy holder. In short, by availing tax saving plans, you are protecting yourself and your family against financial expenses that might arise in the future.
- It is an effective budgeting tool
Budgeting is the easiest way to build savings. And this is made easy with savings plans as it makes the policy holder assess future cash requirements, and set aside a particular amount to be paid as premium periodically. In simpler words, a savings plan helps you save up money so that it can be used when you most need it. They also help policy holders decide how they would like to receive such payment of cash (pay-out). Policyholders can choose to receive payments every month, or year, or as recurring instalments.
- It helps save for retirement
Another reason why you should consider investing is that it helps you save up for retirement. The small portion of your income that you set aside at regular intervals for payment of premium, will build a corpus that is very large, at the end of the policy term. You can also choose the intervals in which you would like to receive the pay-out. This way, even after your retirement, the pay-out from the savings plan will act as a salary of sorts (when monthly payments are opted).
- It helps save on tax
If you are considering investing in a savings plan but apprehensive that it is just a money drain, this point will change your mind. The money that you pay towards the premium of a savings plan can be claimed as a tax deduction when you file your Income Tax Returns. In fact, Section 80C of the Income Tax Act, 1961 allows a policy holder to claim up to Rs. 1,50,000 (Rupees one lakh fifty thousand only) as a deduction for the premium paid for tax saving plans. However, tax laws are subject to change from time to time.
- It helps take a loan on policy
In addition to providing financial cover when required, a savings plan also helps policy holder take out loans against the plan. Once the plan has reached a specified amount, policy holders will be eligible to take out loans on the plan. The rate of interest for these loans is much lower than that for conventional loans. In the event that you need to take out a loan immediately, taking one out on your savings plan will be a wise idea.
- You will receive the sum assured
Another apprehension that might run through your mind as you consider investing in tax saving plans is that you will not receive your sum assured in the event that you do not make claims during the policy term. This is however, not the case with savings plan. True, when claims are made during the term policy(term of your policy) of your, you will receive pay-outs as with general protection plans. However, savings plans offer an added benefit in the form of guaranteed returns, even if claims are not made under the policy during its term. The terms and conditions of your plan will lay out the specifics of such returns.
